will continue substituting good 'x' for good 'y' till MUx/Px = MUy/Py where the consumer will be in equilibrium. Thus this is also known as the law of substitution.TableLet us illustrate the law of Equi-Marginal Utility with the help of a table:The side table shows marginal utilities of goods 'x' and 'y'. Let us suppose that the price of goods 'x' and 'y' are Rs. 2/- and Rs.3/-. Then MUx/Px & MUy/Py are as follows:With a given income a rupee has certain utility to him. This is the Marginal Utility for him. Now the consumer will go on purchasing goods till the marginal utility of expenditure on each good becomes equal to the marginal utility of money to him. Thus the consumer will be in equilibrium at a point where:MUx = MUy = MUmMUm refers to Marginal Utility of Money PxPyLet us suppose that the given income of a consumer is Rs.19/-. With the given income suppose the marginal utility of money is constant at "Rs. 1 = 6 utils". By looking at the above table, it is clear that MUx/Px = 6 utils when he buys 5 units of good 'x' and MUy/Py = 6 utils when he purchases 3 units of good 'y'. Therefore the consumer will be in equilibrium when he is buying 5 units of good 'x' and 3 units of good 'y' and will be spending Rs.19/- on them.MUx/Px = MUy/Py = MUm12/2 = 18/3 = 6GraphThis law can be explained with the help of the following diagram:In the above diagram marginal utility curves of good 'x' & 'y' slope downwards. Marginal Utility of Money is confident at OM.MUx/Px = OM when OK amount of good 'x' is purchases and MUy/Py = OM when OH amount of good 'y' is purchased.Thus the consumer will be in equilibrium when he purchases OK amount of good 'x' and OH amount of good 'y' and then:MUx/Px = MUy/Py = MUmLimitationsThis law is based on the assumption that utility can be cardinally measurable. But in actual practices it cannot be measured in such cardinal numbers. It is also assumed that marginal utility of money is constant. But thi...
